Strategic implications of changes occurred in
the Spanish PV market
David Pérez, partner
Governare la crescita del fotovoltaico
G
f
Kyoto Club
C
th
March 10 2011
Policy Consulting
Strategy Consulting
Financial Advisory Market Intelligence
Agenda
•
Eclareon
•
Review of changes in the regulatory framework
•
Effects on market and industry
•
Strategic implications
•
Conclusions
2
COMPANY OVERVIEW
Eclareon has four practice areas that offer consulting and financial
advisory services to clients in the renewable sector
Policy
consulting
Strategy
consulting
Financial
advisory / M&A
Market
intelligence
Photovoltaics
Solar Thermal
Solar
Thermoelectric
E
Energy
efficiency
ffi i
/ ESCO
Geothermal
Bio-energy
Cogeneration
Wi d
Wind
Electric Vehicle/
Energy storage
Marine/ New
technologies
• Support in policy • Entry strategies
• Commercial due
making
(new geographies
diligence
& technologies)
• M&A advisory,
•
Commercial
coordination &
• Analysis and
strategy
negotiations
evaluation of legal
frameworks
• Introductions to
international
policy making
bodies
Project
j t
• P
management of
public projects
• New ventures &
business
planning
• EBITDA
improvement
• Restructuring
• Corporate
strategy
3
• Company
valuation
• Target
screening &
partner search
• Equity and debt
capital raising
• Investment
opportunities
• Renewable
sector market
information
tools and
publications:
-
PV price
navigator
-
Solar Atlas
Trend Report
• Organization of
fact-finding
missions and
trade
delegations
COMPANY OVERVIEW
Eclareon covers Europe
Europe, Asia,
Asia Middle East and the Americas from its
three permanent offices in Berlin, Madrid and Washington DC, where it
has approx. 25 staff, and its satellite office in Milan
Eclareon offices around the world
Permanent office
Satellite office
4
Eclareon activity
COMPANY OVERVIEW
Eclareon has advised several leading companies in the renewable
sector across the value chain, as well as associations and public
entities.
Associations
EU / Government
Industry
Ciudad de
Hamburgo
Note: Selected clients only
5
Financial Institutions
Agenda
•
Eclareon
•
Review of changes in the regulatory framework
•
Effects on market and industry
•
Strategic implications
•
Conclusions
6
REVIEW OF CHANGES IN THE REGULATORY FRAMEWORK
Recent regulatory changes in Spain have lowered sensibly the feed in
tariffs and set a 500 MW annual cap
Evolution of annual PV capacity in Spain
MW
3.000
2.500
2.000
1.500
1.000
500
0
2005
2006
RD 436/2004
2007
2008
RD 661/2007
2009
2010E
RD 1578/2008
RD 1565/2010
RDL 14/2010
Tariffs (Eu ct/kWh)
Ground
Roof
44*
44*
44
44
32
34
14
20-29
None
None
~500
~500
Caps (MW)
Note:
Source:
* 575% of pool electricity price
Eclareon research; Eclareon Analysis
7
REVIEW OF CHANGES IN THE REGULATORY FRAMEWORK
The Spanish government tried to deal with the PV boom with little
success
Timeline of the PV rush
Nov 2007
•
The ministry announces
that 80% of the official
target for PV had been
reached (80% of 371 MW)
- A 14 month period is
allowed to stop 661
tariffs
Sep 2008
•
•
Jan/Feb 2010
The sprint creates a
bubble
It is estimated that
>600MW make it to the
tariff but without
meeting the deadline
•
The government
announces the
launch of an official
plan to investigate
irregular plants
Aug 2010
•
•
Source:
Eclareon research; Eclareon Analysis
8
The government tries to
expose irregular PV
systems offering a partial
amnesty with the RD
1003/2010 which includes:
- The right to benefit from
RD1578/2008 tariffs
- The obligation to refund (+
interests) the illegally
received amounts
Success is very little
- <10MW took advantage of
the amnesty
REVIEW OF CHANGES IN THE REGULATORY FRAMEWORK
Recent measures implemented by the Spanish government to limit PV
cost have been radical and controversial
Main Recent Measures in place to limit PV cost
(Dec. 2010 to Feb. 2011)
RD 1565 / 2010
RDL 14/2010
•
Tariff reductions
- 45% for ground mounted systems
(14 c€/kWh)
- 25% for rooftop systems >20kW
(20 c€/kWh)
- 5% for rooftop systems <20kW
((29 c€/kWh))
•
Retroactive measures (for existing PV
systems under 661 regime)
- Extraordinary limitation of annual
equivalent hours during 2011
2011, 2012 and
2013 : ~25% reductions of revenues
- Lifetime limitation of annual equivalent
% reduction of revenues
hours: <3%
•
Retroactive limitation of period for FiT to
25 years (for existing PV systems under
661 regime)
•
Increase of period to receive FiT to 30
years
Source:
Eclareon research; Eclareon Analysis
9
Agenda
•
Eclareon
•
Review of changes in the regulatory framework
•
Effects on market and industry
•
Strategic implications
•
Conclusions
10
EFFECTS ON MARKET AND INDUSTRY
The market value fell from ca
ca. 18
18.000
000 million EUR in 2008 to less than 650
million in 2009
Evolution of value of the Spanish
p
PV market
20.000
15.000
M Eu 10.000
5.000
0
06
07
08
09
10E
New installed
annual (MW)
98
556
2.757
180
400
Average
price* (€/Wp)
6,3
5,9
6,5
3,5
2,8
Note:
Source:
*Turnkey
Turnkey price
Eclareon research; Eclareon Analysis
11
EFFECTS ON MARKET AND INDUSTRY
50% of Spanish companies have sought business in foreign markets in
the last years
Spanish companies’ activity in foreign markets
100%
80%
50%
60%
100%
9%
40%
32%
41%
20%
0%
9%
Entering new Entering new
markets
markets in
before 2009
2009
Source:
Actives in
foreign
markets
Eclareon research; Eclareon Analysis
12
Planned entry No planned
entry
Total
EFFECTS ON MARKET AND INDUSTRY
Above 20% of the Spanish PV companies selected Italy to develop
activities in foreign markets
Activity in foreign markets
Italy
France
USA
Other countries
100%
18%
Planned entry
into new
markets
65%
Entry into new
markets in
2009
17%
Entry into new
markets
before 2009
80%
60%
%
40%
20%
0%
0%
0%
Source:
20%
40%
60%
Eclareon research; Eclareon Analysis
13
80%
100%
EFFECTS ON MARKET AND INDUSTRY
The employment generated by the Spanish PV sector fell a 300% in
2009
Jobs in the Spanish
p
PV industry
y
50.000
41.700
40.000
30 000
30.000
26.300
Jobs
CAGR*
09-10
20.000
13.900
2.600
13.675
2.071
Total
Temporary
-2%
- 20%
11 300
11.300
11 604
11.604
Permanent
+3%
2009
2010
10.000
15.400
0
Note:
Source:
2008
*Compounded
Compounded annual growth rate
Eclareon research; Eclareon Analysis
14
EFFECTS ON MARKET AND INDUSTRY
The fall of the Spanish PV sector impacted the industry activity
Evolution of the production of PV modules and cells in Spain
600
500
400
MW
CAGR*
02-09
300
Modules
production
28%
200
100
Cells production
0
2002
Note:
Source:
2003
2004
2005
2006
*Compounded
Compounded annual growth rate
Eclareon research; Eclareon Analysis
15
2007
2008
2009
-11%
EFFECTS ON MARKET AND INDUSTRY
The whole PV industry was attacked by several major media and its
public image suffered a harmful slump
“PV systems producing energy at night”
“The Ministry of Industry asks CNE (National Energy
Commission) to take appropriate measures against the
PV fraud: last winter, electric system received 4.500 MWh
produced between midnight and 7a.m. and 1.500 MWh
between 7 and 11 p.m.”
El Mundo, 14th April, 2010
“PV and coal scams inflate the electric tariff ”
“PV costs: Spanish citizens will pay
70.000 million Euros until 2035”
“Government has not dared to reduce PV
FiTs, though this cut was designed months
ago. If nothing changes, PV installations will
earn more than 3
3.000
000 Million Euros per year
during 25 years”
Expansión, 21th November, 2010
COVER PAGE AT El Mundo, 30th December, 2010
“Fi l consumers will
“Final
ill pay renewable
bl costs”
t ”
Expansión, 18th November, 2010
Source:
Eclareon research; Eclareon Analysis
16
Agenda
•
Eclareon
•
Review of changes in the regulatory framework
•
Effects on market and industry
•
Strategic implications
•
Conclusions
17
MARKET ANALYSIS
The fall of the Spanish market in 2009 created a global shock of demand
which made module prices fall 25% - 40%; this boosted profitability along
the value chain, which made governments react cutting FiTs
Spot price of PV
modules by
technology
Annual installed PV
power globally
Date of
enforcement of
amended FiT rules
8
Spain
p
6
5
2,6
2,4
152%
Germany
GW 4
2,2
Eu/ 2
Wp
1,8
3
1,6
2
1
•
2,8
12%
7
RoW
1,4
1,2
0
Margins along the
value chain increased
during 2009 in all
countries
- IRR for investors
exceeded 20% in
some cases
- Permits were sold
at prices >0,5
Eu/Wp in Spain
Germany
2010-11
Spain
2010-11
Italy
Jan ’11
France
Jan ’10
1
2006 2007 2008 2009
Feb '09
Jan '10
Source: PV Price navigator; EPIA; ERDF; ADEME; SOLER; GSE; BMU; FME; ARGE; CNE; ASIF; eclareon analysis ;eclareon research
18
STRATEGIC IMPLICATIONS
In 2008
2008, turnkey prices caused excessive margins that led to market
inefficiencies
Turnkey prices for 1 MW (early 2008)
•
In 2008, turnkey prices were very high in
Spain compared to other countries
•
Permit prices reached excessive values:
- Spain: > 1 M Eu/MW
- Italy: 0,2 – 0,3 M Eu/MW
•
Modules prices were also superior to prices in
other countries, mainly due to the good
conditions of the Spanish market
7
6
16%
5
38%
4
MW
3
2
1
0
Spain
Italy
“If I sell
ll modules
d l in
i Spain,
S i I increase
i
prices”
i
”
PV module manufacturer
Germany
Excessively high tariffs create market inefficiencies
Source:
Eclareon research; Eclareon Analysis
19
STRATEGIC IMPLICATIONS
Tariffs have fell between 12% and 57% between September 2008 and Q2
2011
PV FiT evolution in Spain
50
CAGR*
07-11E
40
30
Roofs <20kW
-9%
20
Roofs >20kW
-17%
Ground mounted
-25%
Eu ct
/kWh
10
0
2007
Note:
Source:
2008
2009
2010
*Compounded
Compounded annual growth rate
Eclareon research; Eclareon Analysis
20
2011E
STRATEGIC IMPLICATIONS
Feed in tariff cuts forced a sensible decrease of PV modules prices in
only one year
PV EPC cost evolution for ground mounted plants
5
4
50%
3
Eu/Wp
u/ p
2
1
0
2008
2009
PV electricity is 50% cheaper than a year ago
Source:
Eclareon Analysis
21
STRATEGIC IMPLICATIONS
Gradual FiT reduction will help PV reach grid parity and rationalize the
activity along the value chain
Effect of a gradual FiT reduction
Lower
tariff
Decrease
of IRR
Need to
reduce
EPC
prices
Need to
cheaper
equipment
(modules,
etc.)
t )
Increase
of
competition
Need for
professionalization
and rationalization
li ti
Stable and
sustainable
wealth
generation
Fall of
cost of
solar
electricity
Note:
Source:
Reduction
of
margins
along the
value
chain
* Levelized Cost Of Electricity
Eclareon research; Eclareon Analysis
22
STRATEGIC IMPLICATIONS
Our calculations indicate that grid parity has already been reached in
the Canary Islands
Evolution of PV LCOE* in the Canary Islands and autoconsumption savings**
CAGR
(01/08 –
03/10E)
30
Grid parity
25
20
Autoconsumption
8%
savings
-17%
PV LCOE
15
Eu ct./
ct /
kWh
10
RD1578/2008
5
0
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
The decrease of PV tariffs supports the arrival of grid parity
Nota:
* Actual EPC cost of 3,0 Eu/Wp in Las Palmas de Gran Canaria with a 6% discount rate and 30 years lifetime
** Variable cost + Electricity tax; Tarifa 3.0.1 con DH between 01/01/07 and 01/07/09 and TUR con DH onwards
Source: Eclareon research; Eclareon Analysis
23
Agenda
•
Eclareon
•
Review of changes in the regulatory framework
•
Effects on market and industry
•
Strategic implications
•
Conclusions
24
CONCLUSIONS
Conclusions
• Governments are always slower than markets to react to supply or demand
shocks
• Too high tariffs are very harmful for the PV market and industry in the mid and the
long term
- Risk of market breakdown (caps, instability)
- Arrival of “non-professional” actors
- Fall of the public perception of PV technologies: “PV is expensive”
• Retribution (tariff + electricity price) above 20 - 25 c€/kWh is excessive for Italy
• PV companies must have diversified activities
- Several geographies
- Several technologies
- Several activities within the value chain
Source:
Eclareon research; Eclareon Analysis
25
In Spain
p
In G
Germany
y
[email protected]
[email protected]
In USA
In Italy
[email protected]
[email protected]
26